Most Australian founders can recite the headline terms of a SAFE — valuation cap, discount, converts at the next priced round. Far fewer can tell you whether the SAFE in front of them is pre-money or post-money, and almost none can tell you what that single word costs them in percentage points. That’s a problem, because the pre/post distinction isn’t a drafting nicety. It determines who absorbs the dilution from every other SAFE you issue before your priced round — and the answer under the now-standard post-money form is: you, the founder, all of it.
Y Combinator switched its standard SAFE from a pre-money to a post-money structure in 2018, and the Australian market has largely followed — the Australian Investment Council’s widely used template SAFE is drafted on post-money mechanics. But Australia has no truly standard form, and both varieties (plus hybrids that don’t cleanly match either) still circulate. Before you sign anything, you need to know which one you’re holding and what the maths does.
How to Tell Which SAFE You Have
Ignore the title of the document and read the definition that drives the conversion price — usually called “Company Capitalisation” or “fully diluted capital”. The conversion price at the cap is the valuation cap divided by that capitalisation figure, so what counts into the denominator is everything:
- Pre-money SAFE: the capitalisation excludes the shares that will be issued on conversion of this SAFE and the other SAFEs and convertibles on issue. The cap is applied to the company as it stands before the SAFE money.
- Post-money SAFE: the capitalisation includes the shares issuable on conversion of all outstanding SAFEs and convertible instruments (including this one). The cap is a valuation of the company after all the SAFE money is counted in.
The post-money version gives the investor a beautifully simple property: their ownership immediately before the priced round is just investment ÷ valuation cap. Put in $500,000 on a $5 million post-money cap and you know you’ll hold 10% when the SAFEs convert, no matter what other SAFEs the company signs afterwards. A pre-money SAFE holder can’t know their final percentage until the round happens, because every later SAFE dilutes them too.
That certainty is exactly why investors prefer the post-money form — and it has to come from somewhere. Under a post-money SAFE, later SAFEs don’t dilute earlier SAFE holders, so the dilution from stacking SAFEs lands entirely on the founders and other existing shareholders.
The Worked Example
Take a startup with 10,000,000 founder shares and no option pool, which raises three separate SAFEs of $500,000 each — $1.5 million in total — all at a $5 million valuation cap, converting at the cap in a later priced round.
Post-money SAFEs. Each investor’s stake is fixed at $500,000 ÷ $5,000,000 = 10%. Three SAFEs means the SAFE holders collectively own 30% once they convert. For the founders’ 10,000,000 shares to equal 70%, the company issues about 4,285,714 conversion shares. Founders enter the priced round holding 70%.
Pre-money SAFEs. The conversion price is the cap divided by the pre-SAFE capitalisation: $5,000,000 ÷ 10,000,000 shares = $0.50 per share. Each $500,000 SAFE converts into 1,000,000 shares, so 3,000,000 conversion shares issue in total. Each investor ends up with 1,000,000 of 13,000,000 shares — about 7.7%, not 10% — and the founders enter the priced round holding roughly 76.9%.
Same caps, same cheques: the choice of form moves about seven percentage points of the company from the founders to the investors. With a single small SAFE the gap is modest (10% versus 9.1% in this example). It’s the stacking that bites — and pre-seed companies routinely stack SAFEs over 12–18 months of rolling closes. On a post-money form, every extra dollar you raise at the same cap comes dollar-for-dollar out of your own holding, which is why bridging “just another $300k” on SAFEs can quietly cost more equity than founders expect. Then the priced round dilutes everyone again on top.
What Founders Should Actually Do
None of this makes post-money SAFEs wrong — they’re the market norm, and fighting the form itself is usually a losing negotiation. The practical responses are:
- Model before you sign. Keep a running pro-forma cap table that converts every SAFE at its cap, and re-run it before each new SAFE. With post-money SAFEs the arithmetic is mercifully easy: add up each investment divided by its cap, and that’s the slice of your company already spoken for.
- Price the form into the cap. A $5 million post-money cap and a $5 million pre-money cap are not the same deal. If an investor insists on post-money mechanics, the cap should be higher to reflect the SAFE money it now includes — in our example, a $6.5 million post-money cap on $1.5 million of total SAFEs is broadly equivalent to the $5 million pre-money outcome.
- Cap the stack, not just the cap. Decide the total amount you’re willing to raise on SAFEs before the first one is signed, and hold the line. Dilution discipline matters more than any single term.
- Watch the option pool and the boilerplate. Templates differ on whether the unissued option pool counts into the capitalisation and how discounts interact with caps, and Australian SAFEs are customised far more often than their US counterparts — the fundraising disclosure rules under the Corporations Act also constrain who you can issue them to. Some Australian rounds use a convertible equity agreement instead, where the same pre/post question appears in different clothing.
The pattern we see most often as startup lawyers in Sydney is a founder arriving at a Series A term sheet with four or five stacked post-money SAFEs and discovering the combined conversion for the first time, at the worst possible negotiating moment. Our venture capital team models SAFE conversion and round dilution before documents are signed, when the numbers can still be negotiated.
This article is general information only, not legal advice — the right instrument and terms depend on your cap table, your investors and your raise. Viridian Lawyers advises Australian startups and investors on SAFEs, convertible instruments and priced rounds. If you’re about to sign a SAFE and aren’t sure what it does to your ownership, get in touch.
